3/04/2002 @ 12:00AM

The Serial Chargers

The de rigeur axiom on Wall Street has always been that huge one-time charges don’t really count; they are highly unusual events that don’t reflect how a company is truly faring. Wall Street simply ignores them. But some companies take these “non-recurring” charges so regularly that they are a reflection of ongoing business. When you add them back in, earnings turn out to be far worse–and the companies’ shares turn out to be far more expensive. For example, if past turn out to be prologue, International Paper’s 2002 estimated earnings will come in closer to 46 cents per share than the $2.82 analysts are currently looking for, meaning its true price-to-earnings ratio is closer to 90 than 15.

The companies listed here have taken the largest charges relative to their sales in the past five years, as well as a charge of at least $25 million in each of the past five years. Their constant writeoffs indicate they are poor allocators of shareholders’ capital and hint that more hits to earnings are ahead. Says money manager Jack Ciesielski, “If a company is pissing away its capital on writeoffs, you shouldn’t pay as much for its earnings.” –Michael K. Ozanian

(E): Estimate. Notes: (1)Charges exclude extraordinary items, such as accounting changes, and are net of unusual gains. (2)EPS 2002E mean reduced by difference in net income before and after charges. (3)P/E 2002E mean reduced by the difference between net income before and after charges. (4)Includes years with net charges of at least $25 million. Sources: Multex; Thomson Financial/IBES via FactSet Research Systems.